Posts tagged 'Brent'

Oil and the prospect of a Chinese shale boom

Russia geopolitical risk? Check. Middle East geopolitical risk? Check.

But commodity prices, and in particular oil prices, are doing nothing: Read more

Sharks off the British coast again?

The summer silly season is nearly upon us, so what chance a reprise of this Daily Mail classic?

From November 2009 when Britain’s tabloids met contango with predictable consequences: Read more

A supply-side face-off in oil

As we alluded to earlier, there is a battle taking place in the oil markets at the moment.

On one side there are conventional oil producers like Opec members desperate to stop oil prices from following the declining trajectory of the wider commodity complex. On the other side there are the new US shale oil producers, who — due to the US export ban — are unable to capture the full earnings potential of their production (on account of an inability to tap foreign bids directly).

The problem for Opec types is that the break-even rates they seek to defend are now too high to prevent the new class of producer from being incentivised to keep producing. This despite the fact that the export bottleneck only ends up transferring much of the profitability to the refining sector instead of the US producer. Read more

The crude market in perspective

A picture, they say, is worth a thousand words. The same applies to some charts.

From the IEA’s latest market report on Wednesday:

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Mind the WTI-Brent spread!

The WTI-Brent spread is at a record wide of almost $20 per barrel. This isn’t, of course, what was supposed to happen.

As JBC Energy wrote on Thursday: Read more

Recollecting the false messiah of peak oil

Oil prices continue to decline, with WTI currently leading the charge:

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The WTI carry unwind

The fixed income team at Credit Suisse have a good note talking about what’s really driving WTI backwardation. Small hint, they don’t think it’s much to do with Egypt.

They put the backwardation down to three things. Read more

Scarcity amid plenty – Part Deux

A while back we talked about the anomaly of backwardated curves amid a veritable abundance of US and global inventory.

Or more specifically, the irony that prices were falling even as curves were implying backwardation (usually a bullish signal reflective of tight supply). Read more

WTI and the taper effect

Lots of commentary is linking the mini-surge in WTI overnight, and subsequent WTI-Brent compression, to events in Egypt.

But it’s probably much more related to a shift in interest-rate expectations than anything to do with Middle Eastern tensions. Read more

The oil markets are in a flux

… and it’s all because, the lady loves shale oil.

Well, what we mean is that finally, the surplus stock of crude trapped in America is having a price effect beyond borders because logistical constraints have been removed and storage incentives have started to disappear. Also, because graphs like these can no longer be ignored.

The result: a major narrowing in the WTI-Brent spread. Read more

Canada’s grizzly outlook

Oh, Canada.

Home of oil sands, maple syrup, ice hockey, singing astronauts, William Shatner, the Bank of England’s governor-to-be and (rather poignantly) a lot of bears… Read more

Oil market struck by light sweet fatigue

John Kemp at Reuters has been following the interesting case of light sweet fatigue in the oil market.

As he first noted on Tuesday, a surge in shale oil production alongside a big increase in modern refinery capacity is increasingly undermining the value of sweet crude in the market. Read more

Welcome to Saudi America

WTI crude prices are on the rise, but only at the expense of Brent’s premium. The spread between the two crude grades shrank below $8 this week, its lowest since January 2011.

But what’s really striking is the rise in US crude output, which has risen 57,000 barrels a day to 7.37m — its highest level since February 1992.

If one chart speaks a thousand words in this regard, it’s the following one from the American Enterprise Institute’s Carpe Diem’s blog, charting data from the US Department of Energy:

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Why the Brent oil market just got some slack

The number of cargoes that go towards determining the Dated Brent price is rising.

As Reuters reported on Thursday:

At least nine May cargoes have moved up the North Sea Forties crude programme after stronger-than-expected output from Britain’s Buzzard oilfield, the biggest contributor to the Forties stream.

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The decline of the oil spot market?

According to the EIA, the definition of “spot market” is:

The price for a one-time open market transaction for immediate delivery of a specific quantity of product at a specific location where the commodity is purchased “on the spot” at current market rates. Read more

Breaking bad inflation expectations

A pattern is evolving in the world of inflation expectations.

It goes something like…

QE/government intervention is announced, people interpret this as inflationary, risk-on mentality ensues, a good opportunity to lock-in yield is provided for anyone who recognises the yield curve is mispriced — in the sense it is pricing in too much inflation/higher interest rates — the expectations turn out to have been misplaced, the curve corrects, confidence is lost until a new round of QE or government intervention is announced.

And so on. Read more

Dispatches from the RoooRooo zone?

From Capital Economics on Friday:

At the time of writing (Friday afternoon in the UK), equity and commodity prices and government bond yields are all falling sharply. This appears to be in response to weaker-than-anticipated US data on retail sales and consumer confidence (discussed further below). If so, this is probably an overreaction, as the figures were hardly disastrous. The falls in the prices of riskier assets may also have been exaggerated by week-end position squaring after the Bank of Japan-inspired rally in the previous days.

Nonetheless, most of these moves are consistent with our long-held view that a disappointing global recovery will cause the equity market rally to run out of steam, the prices of industrial commodities to fall further (with Brent crude in particular heading back below $100) and 10-year US Treasury yields to dip to 1.5% or so by year-end. The pick-up in market volatility more generally is something that we had been anticipating too.

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*Something* is happening in Brent…

Something is fundamentally changing in the oil market. To explain, consider the following.

The first chart for your consideration is the current Brent price (a reasonably large fall this week): Read more

More on the spot and forward price commodity disconnect

An excellent observation from John Kemp over at Reuters on Tuesday regarding the spot/forward disconnect we’ve been talking about:

The increasingly close linkage between hedge funds and spot prices since 2010 has also coincided with a sharp reduction in the correlation between front-month and far-forward prices. Correlation between spot month and forward prices, generally above 90 percent until 2010, is now often less than 50 percent (Charts 5-6). Read more

A Rosneft hedge distortion?

This is a follow up to Thursday’s post about Rosneft’s 500 million barrel collateralised financing (to raise money for its purchase of BNP-TNK) and how the market managed to absorb it almost without any price impact.

Most of the previous post was based on the observations of Philip. K. Verleger, who believed the latter point represented a triumph for the futures markets, which had reached a whole new level of maturity.

And yet, as we have been reporting, it’s always more important to look to the curve. Spot price, or “flat price” as traders like to call it, is almost irrelevant. What’s happening in so-called time-spreads is usually much more critical. (And yes, nobody usually takes unhedged positions on flat price.) Read more

Is Saudi Arabia starting to panic?

Some excellent market commentary from Olivier Jakob at Petromatrix on Friday morning regarding the current state of oil market (dis)equilibrium and the potentially precarious position of Saudi Arabia. Read more

A negative spin to crude’s mysterious slide

People are still scratching their heads over what possibly sparked crude oil’s sell-off in the middle the US trading day on Monday.

Explanations in contention include: fat fingers, SPR talk and general illiquidity due to the Jewish New Year. Read more

Burnt, oily hands

Brent crude, tumbling at pixel. (The USO fund too.)

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‘The biggest overproduction for any quarter since 1998′

Did anyone notice how the Brent slump seemed to come to a dramatic halt around June?

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Cnooc-Nexen, and a Brent outing

China buys two North Sea oil fields on the same day. Coincidence — or a sign of change coming to the oil market’s biggest benchmark?

In addition to Sinopec’s $1.5bn acquisition of a stake in Talisman… Cnooc’s $15bn play for Canada’s Nexen (at a 61 per cent premium to the share price!) might give the state offshore oil company a major bridgehead into the setting of the Brent crude price. Read more

About Friday’s WTI price surge…

Late last Friday afternoon, WTI crude futures experienced one of their sharpest price increases since the Libya crisis of last year:

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Hello Brent contango

We appreciate that this will not be news for anyone who’s been watching oil markets closely.

However, we still think it’s a valuable recap. Read more

Brent reigns supreme

Back in early 2011, a very intriguing thing happened in the oil markets.

As if by magic — (well, over the period of about a couple of months) — the market collectively and spontaneously moved from using WTI as its primary benchmark for pricing product spreads over to the Brent contract. The era of the “Brent crack” was born. Read more

Here’s where all the oil hedgers have gone…

Last week we wrote about John Kemp’s column pointing out that CFTC data suggests hedgers — those who are exposed to physical prices through their business operations — fuel resellers and others hedge against their operational exposure to oil prices — collectively had the smallest net short position in six years in late April.

We advanced a few possible explanations of our own, including the idea they’d mainly popped over to the Brent market. Read more

Dark inventory, a volatility shock absorber

From oil to copper, something strange is going on with commodity inventories.

Official stocks are rising across numerous commodities, but analysts and traders swear fundamentals remain tight, while prices stay supported: Read more